Aveng -- final results June 2014

Tuesday 26th August, 2014
Revenue increased by 2% to R53 billion (R51.7 billion). Gross earnings increased to R3.84 billion (R3.47 billion). Net operating earnings rose to R784 million (R656 million). Loss for the period attributable to equity-holders of the parent came in at R381 million (profit of R466 million). In addition, headline earnings per share fell to 112.5cps (124.6cps).

Dividend declaration
The board has reviewed the current period's financial performance and as a result of the adverse cash flow associated with Australian contracts and losses at Aveng Grinaker-LTA, the Board has resolved not to declare a dividend. The Group will revert to its stated dividend policy in the medium term.

Management has a clear plan to improve liquidity over the short term and is addressing the overall fixed cost base of the Group. The Group will continue to focus on improved operational performance with a specific focus on returns and cash generation.

With the slowdown in some of its traditional markets, the Construction and Engineering: Australasia and Asia segment continues with its strategy to diversify into non-mining opportunities in its traditional markets and regions outside Australia. McConnell Dowell aims to achieve increased profitable market share within the oil & gas and minerals & mining sectors. In addition to the aforementioned prospects, targets in the contract pipeline include transport infrastructure, hydro power, reticulation pipelines, and urban and major redevelopment infrastructure works. With a significant portion of its non-contributing revenue having reached completion, the segment is expected to generate an improved performance. The commercial resolution of the QCLNG and Gold Coast claims will remain a materially significant risk to the medium-term earnings of the segment and the Group.

Within the Construction and Engineering: South Africa and rest of Africa, progress has been made in key focus areas intended to stabilise Aveng Grinaker-LTA, to address its critical challenges in underperforming contracts and return it to sustainable profitability. Although the early stages of the business turnaround are evident, the focus remains firmly on improving contract execution and commercial management, while aligning the fixed cost structure with revenue. In combination with achieving commercial resolution to loss making contracts and the working out of non contributing contracts in the revenue stream, the business will continue to focus on its recovery process. Prospective pipeline targets are healthcare, retail, rail infrastructure, interchange-focused road works, water and renewable energy.

It is anticipated that investment in the Mining industry will remain constrained until the 2016 financial year, and the lead times to secure new contracts will continue to be lengthy. The cost pressures faced by mining companies will maintain pressure on contractor's profit margins. In this environment, Aveng Moolmans and Aveng Mining Shafts & Underground will both focus on improving internal operational efficiencies and mitigating risk by securing contracts of a longer duration in support of an improved financial performance. Aveng Manufacturing enters the 2015 financial year with strong prospects in a difficult market. Railway development remains a key growth market and Aveng Manufacturing will continue to construct, supply concrete products and pursue additional rail maintenance work for the major railway contracts underway in Mozambique, Zambia and South Africa during 2015. The steel industry is anticipated to remain under pressure in the coming financial year, with no improvement in prices or demand projected in the present economic environment. The steel sector labour disruptions in July 2014 will have a notable impact on the first half of the 2015 financial year.

Aveng Trident Steel will continue to focus on diversifying its revenues and strengthening its profit margins by increasing its branch network in South Africa, targeting higher value added products and maintaining its focus on operational efficiency improvements. Aveng Steeledale will focus on strengthening its distribution network and preserving a lower cost base. The business will benefit from an increase in infrastructure investment. Aveng Steel Fabrication will focus on boosting its operations and achieving sustainability by reducing costs, securing more work and improving profitability. All operations within the Aveng Group will focus on optimisation and efficiency initiatives focusing on the efficacy and cost competitiveness of the fixed cost base. In summary, while the Group expects the underlying performance of the business to improve in the 2015 financial year, the resolution of the claims will remain a material risk to earnings.